E-commerce fundamentals Chapter 2 E-commerce fundamentals

Management issues What are the implications of changes in marketplace structures for how we trade with customers and other partners? Which business models and revenue models should we consider in order to exploit the Internet? What will be the importance of online intermediaries and marketplace hubs to our business and what actions should we take to partner these intermediaries?

Figure 2.1 The environment in which e-business services are provided

Activity – the e-commerce environment For each of the environment influences shown in Figure 2.1, give examples of why it is important to monitor and respond in an e-business context. For example, the personalization mentioned in the text is part of why it is important to respond to technological innovation.

Environment constraints and opportunities Customers – which services are they offering via their web site that your organization could support them in? Competitors – need to be benchmarked in order to review the online services they are offering – do they have a competitive advantage? Intermediaries – are new or existing intermediaries offering products or services from your competitors while you are not represented? Suppliers – are suppliers offering different methods of procurement to competitors that give them a competitive advantage?

Environment constraints and opportunities (Continued) Macro-environment Society – what is the ethical and moral consensus on holding personal information? Country specific, international legal – what are the local and global legal constraints for example, on holding personal information, or taxation rules on sale of goods? Country specific, international economic – what are the economic constraints of operating within a country or global constraints? Technology – what new technologies are emerging by which to deliver online services such as interactive digital TV and mobile phone-based access?

Strategic Agility Capability to respond to environmental opportunities and threats to gain competitive advantages Read the pp. 58-59 Mini Case Study 2.1 The video may be searched form Google video search. Discuss the key points of strategic agility P. 59, Activity 2.1 Give examples of why it’s important to monitor and respond in an e-business context

Figure 2.2 Professor Donald Sull of London Business School talks about strategic agility Source: www.ft.com

Figure 2.3 An online marketplace map

Online Marketplace Analysis Customer Segment Search Intermediaries

Online Marketplace Analysis Intermediaries and Media Sites Mainstream news media sites or portal, e.g., cbc.ca, Google Niche or vertical media sites, e.g., e-consultancy Price comparison sites (also called aggregator), e.g., http://www.pricecanada.com/ Super-affiliates Niche affiliate or bloggers—often small or individual sites Destination Sites The sites that the marketer tries to generate traffic to

Marketplace Channel Structure It describes the way a manufacture / supplier delivers products and services to its customers Fig. 2.5 and Fig 2.6 display variety of options

Figure 2.5 B2B and B2C interactions between an organization, its suppliers and its customers

B2B and B2C characteristics Proportion of adopters with access Low to medium High to very high Complexity of buying decisions Relatively simple – individual and influencers More complex – buying process involves users, specifiers, buyers, etc. Channel Relatively simple – direct or from retailer More complex, direct or via wholesaler, agent or distributor Purchasing characteristics Low value, high volume or high value, low volume. May be high involvement Similar volume/value. May be high Involvement. Repeat orders (rebuys) more common Product characteristic Often standardized items Standardized items or bespoke for Sale

Figure 2.6 Disintermediation of a consumer distribution channel showing (a) the original situation, (b) disintermediation omitting the wholesaler, and (c) disintermediation omitting both wholesaler and retailer

Reinter-mediation The creation of new intermediaries between customers and suppliers, such as search engine, price comparator, etc. such as http://www.esurance.com/, http://www.pricecanada.com/ Supplies need to Be represented with new intermediaries Monitor other suppliers via intermediaries Create own intermediaries

Figure 2.7 From original situation (a) to disintermediation (b) and reintermediation (c)

Countermediation Creation of a new intermediary by an established company Example: B&Q www.diy.com Opodo www.opodo.com Boots www.wellbeing.com www.handbag.com Ford, Daimler (www.covisint.com) Partnering with existing intermediary – Mortgage broker Charcol and Freeserve

Types of Online Intermediary Infor-mediaries— intermediaries that capture, profile, and sell customer information Metamediaries— intermediaries that assist with selection and discussion of about different product and services; they connects customers with the providers Example: http://www.metacritic.com/

Figure 2.11 Metacritic (www.metacritic.com) Source: CBS Interactive

Business model Timmers (1999) defines a ‘business model’ as: An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.

Business model Key elements Value proposition-products & services to offer Market or audience Revenue models and cost base Competitive environment Value chain and marketing positioning Representation in the physical & virtual world Organizational structure Management

Revenue model It describes how a business generate revenue What are traditional ways? The New Ways

Revenue Model- Publisher Example Advertising CPM (cost per thousand/mille) Advertising CPC (cost per click) Sponsorship of section, content, or widget Affiliate Revenue (CPA or CPC) Transaction Fee Subscription access to content or services Per-per-view Access to document Subscription Data Access for e-mail Marketing

Figure 2. 14 Alex Tew’s Million Dollar Home Page (www Figure 2.14 Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)

Online Business Revenue Calculation What factors to consider? Number and size of ad units Ads Capacity to be sold Fee level negotiated for different ads models Traffic Visitor engagement (time to stay)

Figure 2. 15 Example spreadsheet for calculating a site revenue model Figure 2.15 Example spreadsheet for calculating a site revenue model. Available for download at www.davechaffey.com/Spreadsheets

Figure 2. 15 Example spreadsheet for calculating a site revenue model Figure 2.15 Example spreadsheet for calculating a site revenue model. Available for download at www.davechaffey.com/Spreadsheets (Continued)